There was a time — not long ago — when the word “unicorn” in India carried the same thrill as a Test century at Eden Gardens. Investors rushed in, founders were feted, valuations ballooned and the narrative was simple: scale first, profits later. Today, that story is fraying. Multiple data points show funding has cooled, valuations are being rechecked, and a non-trivial set of once-proud unicorns have been humbled. The question is less romantic: why are so many Indian unicorns not performing to their optimum? The answer is a cocktail of easy money-era excess, shaky unit economics, regulatory friction and the hard arithmetic of markets catching up with reality.
Start with the numbers. Tracxn’s semi-annual report shows India’s tech startups raised $4.8 billion in H1 2025 – a 25% drop from $6.4 billion in H1 2024. Late-stage funding and big cheques that lubricated hypergrowth are rarer now; investors are more selective.
How many unicorns do we even have? Depends who you ask. Some trackers show India’s unicorn club still north of a hundred; others, using stricter criteria or stripping companies that have been marked down, put the number lower. The churn is real: recent reports say India added new billion-dollar startups in 2025 even as 16 firms lost their unicorn tag in the same year. That volatility is a signal, not background noise.
So where did it go wrong?
1. Growth-at-all-costs has metastasised into fragile unit economics
In the cheap-capital era, many founders prioritized market share over margins. CAC (customer acquisition cost) was subsidized by venture capital; retention and LTV (lifetime value) were assumed, not proven. When capital tightened, the math was suddenly unforgiving. Businesses that burn cash to acquire users without a path to repeatable profits found themselves exposed. That’s not theory – it’s now visible in the way funding rounds shrank and term sheets demanded KPIs instead of slides. Tracxn’s funding slowdown reflects this investor discipline shift.
2. Valuation illusions and multiple compressions
Many valuations were set on optimism — future market dominance rather than present earnings. Public markets and later-stage investors have re-priced tech globally; private comps adjusted accordingly. Some companies have seen mark-downs or even lost unicorn status as fresh appraisals reflect real revenue traction, not projection zeal. The churn report that flagged 16 startups dropping out of unicorn lists is emblematic of this rebalancing.
3. Regulatory and macro headwinds
India’s regulatory environment has matured — in ways that are healthy for the long term but painful in the short run. Fintech players face tighter rules from the RBI; data localisation and platform compliance add cost and slow rollouts. At the same time global macro uncertainty — higher rates, geopolitical risk, inflation — has made late-stage capital more expensive and risk-averse. Investors are asking different questions now: “Show me recurring revenue, unit economics, governance.” That’s a very different brief to “grow at any cost.”
4. Governance and concentration risks
There have been too many headline governance issues — opaque corporate structures, related-party concerns, founders resisting professionalisation. Markets punish opacity. As investors push for boards with independent directors, audited books and clearer capital structures, some firms are finding that the runway they assumed was longer than it is. The era when a charismatic founder could paper over sloppy controls is ending.
5. Talent bloat and operational inefficiencies
Unicorns hired fast — product, sales, BD, armies of juniors — betting that scale would swallow inefficiency. When growth slowed, those fixed costs became a millstone. Layoffs and restructuring are the ugly, inevitable corrective. But they also leave scars: lost institutional knowledge, talent flight and brand damage that slow the next growth chapter.
6. Sectoral maturation and winner-takes-most myths
Not every sector can host multiple hyperscalable billion-dollar businesses. In payments, credit and grocery, network effects and distribution moats favor a small number of winners. The “we can all be the winner” mental model created duplicate plays and unprofitable competition. Capital has moved to verticals with clearer path-to-profits (SaaS, select fintech, enterprise) and away from spectacle.
What does the data tell us about the market’s course? Bain’s India VC report for 2025 is instructive: after the reset, overall VC activity rebounded in 2024 with funding of $13.7 billion, showing resilience but also a new focus – quality over quantity. That rebound is not a signal to return to past excesses; it’s a nudge that capital will come — but to better-run businesses.
Practical diagnostics for founders and investors:
Recenter on unit economics. Obsess over CAC payback, retention cohorts and LTV. If the numbers don’t pay back in 12–24 months, change the model.
Cut vanity metrics. Downloads don’t pay salaries; paid, repeat customers do.
Professionalise governance. Independent boards, transparent reporting and cleaner cap tables are not bureaucratic frills — they lower your cost of capital.
Diversify funding sources. Move beyond dependence on one large global fund. Local LPs, strategic corporate partners and debt instruments can smooth cycles.
Prepare for disciplined public markets. IPOs are not exits for the fainthearted anymore; they require profitability narratives, not only growth stories.
Strategic M&A over headline hires. Buy capabilities and customers where it makes sense; don’t hire a 100-person org overnight to chase a market segment.
Investors, too, have homework. SoftBank’s era of giant cheques that prioritized market share taught a lesson: push founders for governance and unit economics from day one. Limited partners must reward funds that prioritize sustainable returns over splashy growth metrics. And policymakers should keep doing what they’ve started — improving regulatory clarity while supporting access to growth capital.
The good news? India’s ecosystem is not collapsing; it’s maturing. Tracxn and other trackers still show meaningful funding flows and fresh unicorn entries in 2025 — the engine is sputtering in parts, but it hasn’t stopped.
If I had to sum it up in one sharp line (because we journalists like a line): the unicorn mania was a ‘Caramel Pudding’ dessert – caramelized on top, gooey inside – and the oven’s been turned down. The task now is to bake something that holds together without external heat: businesses that make money, govern well and scale sensibly. That’s less glamorous at a cocktail party, but it’s how fortunes are actually made.
India has the market, the talent and the demand. The playbook must change from “grow fast, explain later” to “build durable, prove the math.” Do that, and the next generation of unicorns won’t just be valuations on a slide deck – they’ll be companies that actually deliver for founders, employees, customers and the economy.
